The trading platform Robinhood is considered safe for investors. It's a member for the Securities Investor Protection Corp. (SIPC), is regulated by the Securities and Exchange Commission (SEC), and has additional financial protection per customer up to certain amounts for cash and securities.

Learn more about why Robinhood is considered safe and then decide if it's the right investment app for you.

Is Robinhood Safe?

Robinhood (HOOD) is a popular financial services company with 24.3 million funded customers as of August 2024. It’s considered a safe option for investors’ securities and cash for v💙ar🥂ious reasons:

• Robinhood is a member of the 澳洲幸运5官方开奖结果体彩网:Securities Investor Protection♏ Cor📖p. (SIPC). This means that any loss of an investor’s securities (e.g., stocks and bonds) and cash held by Robinhood is protected up to $500,000 in the event the firm fails or goes out of business. This includes up to $250,000 protection for cash holdings. SIPC insurance doesn't protect investments from losses caused by market fluctuations.
• Robinhood is also regulated by the SEC because it’s a registered 澳洲幸运5官方开奖结果体彩网:broker-dealer.
• Finally, Robinhood offers added financial protection per customer account of up to $1.9 million for cash and $50 million for securities.

How Does Robinhood Work?

Robinhood is a financial services company that allows individuals to trade 澳洲幸运5官方开奖结果体彩网:cryptocurrencies, 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs), individual stocks, and options. It offers commission-free trades and services similar to any other brokerage company. For a monthly fee, you can also invest your uninvested funds in a brokerage 澳洲幸运5官方开奖结果体彩网:cash sweep fund offering interest on the funds.

Robinhood disrupted the financial technology industry by 澳洲幸运5官方开奖结果体彩网:offering commission-free trades. It launched in December 2014 with a waiting list of more than 500,000. Company founders Vladimir Tenev and Baiju Bhatt, both Stanford physics graduates, believed that 澳洲幸运5官方开奖结果体彩网:Robinhood would motivate a new generation of would-be investors with their mobile platform.

In 2016, it launched a♍ premium trading platform called Ro𒅌binhood Gold. This service offers investors

• Premium features for a $50 annual fee
• Allows members to trade on margin interest-free up to $1,000
• Grants bigger instant deposits
• Provides access to professional research and Level II market data

Investors interested in premium features can sign up for a 30-day free trial.

Robinhood has won a loyal following, and the company is backed by major players such as Google Ventures, Index Ventures, and Andreessen Horowitz. But is it safe? Here’s what you should know.

Robinhood’s Protections

As noted in Investopedia’s review of the platform, Robinhood was an exciting platform that attracted new, mostly 澳洲幸运5官方开奖结果体彩网:retail investors who wanted to trade in small quantities. Despite the simple user interface that demystified trading fo🐓r many, some investors questioned if the platform was too good to be true.

Luckily, Robinhood, like all 澳洲幸运5官方开奖结果体彩网:brokerage firms that handle securities, is regulated by the SEC. The SEC’s primary compliance mechanism is prosecuting civil cases against individuals and companies that☂ commit fraud, disseminate false information, or engage in insider trading. The SEC doesn’t offer individual investors any protection, and it doesn’t insure against loss or otherwise protect investments from actions that brokerage fi😼rms may take.

Robinhood also maintains membership in FINRA, a 澳洲幸运5官方开奖结果体彩网:self-regulatory organization (SRO) in which most brokerage firms voluntarily participate. SROs are overseen by the SEC but aren't part of the government. Brokerages that are FINRA members submit to the organization’s rules and regulations, which cover testing and licensure of agents and brokers, and a transparent disclosure framework that protects investors.

Other Protections

Investment accounts with Robinhood are covered by the SIPC, a nonprofit membership corporation that protects money invested in a brokerage when it files for 澳洲幸运5官方开奖结果体彩网:bankruptcy or encounters other financial difficulties.

The SIPC was created by Congress in 1970 under the 澳洲幸运5官方开奖结果体彩网:Securities Investor🌳 Protection Act (SIPA). The SIPC has no authority to investigate or regulate its members—it exists only to restore investor funds (up to $500,000 for securities and cash or $250,000 for cas🐼h only per account) held by financially troubled brokerages.

In addition to SIPC coverage, Robinhood has what it calls “excess of SIPC” coverage. Through its partnerships with certain underwriters at 澳洲幸运5官方开奖结果体彩网:Lloyd’s of London, Robinhood provides up to $1.9 million more for cash and $50 million more for securities protection per customer, which is triggered when SIPC coverage is exhausted.

Risks Associated With Trading on Robinhood

For most investors, the potential risks involved with using Robinhood aren’t associated with the regulatory framework covering their accounts. Instead, risks may arise because Robinhood is a very sleek and minimal application, and 澳洲幸运5官方开奖结果体彩网:investor tools are rudimentary compared with those of other major brokerages like 澳洲幸运5官方开奖结果体彩网:Charles Schwab and E*Trade. This can lead to hasty and uninfo♎rmed decision-making, especially for novice investors.

The Robinhood app makes it difficult to manage a 澳洲幸运5官方开奖结果体彩网:diversified portfolio. Most reviewers suggest that tracking more than three or four positions isn’t practical with Robinhood, which leads to overweighing your portfolio with one or two equities—never a good practice.

Robinhood doesn’t integrate with other financial management tools like Mint or Quicken, so therꦡe’s no convenient way t𒆙o track your holdings as a part of your overall financial picture outside the Robinhood app.

In December 2022, Robinhood introduced Robinhood Retirement, which is an 澳洲幸运5官方开奖结果体彩网:individual retirement ac✃count (IRA) option. It offers a 1% match for every dollar contributed. This feature extends to their users the benefits of tax savings and long-term compounding that come with retirement savings pl𒉰ans.

Robinhood’s Challenges

There are challenges inherent with brokerage firms like Robinhood. For instance, one of the main sources of Robinhood’s revenue comes from 澳洲幸运5官方开奖结果体彩网:payment for order flow (PFOF), which the SEC has reviewed and charged the firm with deceiving its customers.

In this practice, brokerage firms receive payments for any client trades directed to 澳洲幸运5官方开奖结果体彩网:market makers. The payments are generally fractions of a penny per share. So while it may not seem like much, it does add up when multiple trades are redirected. If banned, companies like Robinhood would lose a significant revenue stream.

Robinhood also has 澳洲幸运5官𒁃方开奖结果体彩网:experienced service interruptions and outages during large influxes of orders made by multiple users at the same time, which was commonly found with trades of highly volatile names. This not only led to customer complaints but also meant that Robinhood had to pay a $70 million settlement—the largest such FINRA penalty—in June 2021 to cover losses experienced due to these outages. FINRA had fined Robinhood a much less severe $1.25 million in 2019 for best-execution violations.

The Bottom Line

For a certain class of investors, Robinhood may be the right tool at the right time. However, for 澳洲幸运5官方开奖结果体彩网:long-term investors, a mainstream broker may be a better alternative. In many cases, you can open a no-minimum balance account and get commiss✃ion-free trades on many, if not most, ETFs while also gaining access to all the data, charts, tools, an🎐d educational resources you need to make informed decisions.